GANESH CHHGANLAL JAIN, MUMBAI V. CIT (A), NFAC, DELHI

ITA 2101/MUM/2022

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0452 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: G
• Next Hearing Date: 11-10-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 21-08-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Income from undisclosed sources; Search and seizure; Speculation loss; Avoidance of tax; Reason to believe; Capital Gains
• Section: 148; 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI RAHUL CHAUDHARY (JUDICIAL MEMBER) ITA No. 2101/MUM/2022 Assessment Year: 2012-13 Ganesh Chhganlal Jain, Plot No. 899 Jassawala Wadi, Juhu Tara Road, Juju, Andheri West, Mumbai-400049. Vs. CIT (A) NFAC, Delhi. PAN No. AANPJ 1550 D Appellant Respondent Assessee by : Mr. Pramod Kumar Parida, AR Revenue by : Mr. Sanyam Suresh Joshi, DR Date of Hearing : 12/10/2022 Date of pronouncement : 18/10/2022 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against the order dated 21.06.2022 passed by the Ld. National Faceless Appeal Centre (NFAC), Delhi (hereinafter shall be referred as ‘Ld. First Appellate Authority or FFA’) for assessment year 2012-13, raising following ground: 1. Addition of Rs.2,10,483 by disallowing the Short gain on sale of scrip [erred in upholding term capital gain of Rs.2,10,483) by the assessing officer based on the information received from the Investigation office rather relying into the merits of the case. The Appellant craves leave to add, alter or 2. Briefly stated, facts of the case are that the assessee filed return of income on 31.07.2012 ₹48,80,170/-. The total income declared by the assessee included salary of ₹43,29,600/ from business or profession ₹6,97,248/- and income from other sources manner, the assessee has set off the short term capital loss against the income under other heads and arrived at total income of ₹48,80,170/-. The return of income filed by the assessee was processed u/s 143(1) of the Income Act’). Subsequently, on receipt of information from the Directorate of Investigation, Mumbai that assessee is a beneficiary of bogus Addition of Rs.2,10,483 by disallowing the Short gain on sale of scrip - Learned First Appellate Authority (FAA) [erred in upholding the addition of accounted income (i.e. short term capital gain of Rs.2,10,483) by the assessing officer based on the information received from the Investigation office rather relying into the merits of the case. The Appellant craves leave to add, alter or amend all or any of the above Grounds of Appeal. Briefly stated, facts of the case are that the assessee filed return of income on 31.07.2012 declaring total income of . The total income declared by the assessee included 43,29,600/- speculation loss and (-)₹1,43,497/ from business or profession (Nil); short term capital gain ( and income from other sources ₹6,65,570/ manner, the assessee has set off the short term capital loss against ncome under other heads and arrived at total income of . The return of income filed by the assessee was processed u/s 143(1) of the Income-tax Act, 1961 (in short ‘the Act’). Subsequently, on receipt of information from the Directorate tigation, Mumbai that assessee is a beneficiary of bogus Ganesh C. Jain ITA No. 2101/M/2022 2 Addition of Rs.2,10,483 by disallowing the Short-term capital Learned First Appellate Authority (FAA) the addition of accounted income (i.e. short- term capital gain of Rs.2,10,483) by the assessing officer based on the information received from the Investigation office rather relying into the merits of the case. The Appellant craves leave to amend all or any of the above Grounds of Appeal. Briefly stated, facts of the case are that the assessee filed declaring total income of . The total income declared by the assessee included 1,43,497/-) income short term capital gain (-) 6,65,570/-. In this manner, the assessee has set off the short term capital loss against ncome under other heads and arrived at total income of . The return of income filed by the assessee was tax Act, 1961 (in short ‘the Act’). Subsequently, on receipt of information from the Directorate tigation, Mumbai that assessee is a beneficiary of bogus entries of long term capital gain/ of entries in the penny stock the Assessing Officer reopened the assessment by way of is notice u/s 148 of the Act dated 30.03.2019. The Assessing Officer held that assessee has set off its taxable income against the bogus short term capital loss generated on sale of scrip namely M/s VMS Industries Ltd. which is Officer pointed out that during the search action at t Shri Naresh Jain, he bogus long term capital gain to corresponding short term/long term capital lo other set of taxpayer finding, the Ld. Assessing Officer held that the short term capital loss as unaccounted income of the assessee observing as under : “4.5 The essence of the scheme was to include to produce a gain to be claimed us 10(38) or loss under the head 'STCL' or Business Loss. At the same time another transaction was designed to tries of long term capital gain/short term capital loss of entries in the penny stock; M/s VMS Industries Ltd. and therefore, the Assessing Officer reopened the assessment by way of is notice u/s 148 of the Act dated 30.03.2019. The Assessing Officer held that assessee has set off its taxable income against the bogus short term capital loss generated on sale of scrip namely M/s VMS Ltd. which is a device of tax evasion. Officer pointed out that during the search action at t e admitted that he was engaged in providing bogus long term capital gain to one set of corresponding short term/long term capital loss was taxpayer, which included the assessee. After detailed finding, the Ld. Assessing Officer held that the short term capital loss as unaccounted income of the assessee observing as under : The essence of the scheme was to include a transaction designed to produce a gain to be claimed us 10(38) or loss under the head 'STCL' or Business Loss. At the same time another transaction was designed to Ganesh C. Jain ITA No. 2101/M/2022 3 short term capital loss particularly ; M/s VMS Industries Ltd. and therefore, the Assessing Officer reopened the assessment by way of issue of notice u/s 148 of the Act dated 30.03.2019. The Assessing Officer held that assessee has set off its taxable income against the bogus short term capital loss generated on sale of scrip namely M/s VMS . The Assessing Officer pointed out that during the search action at the premises of that he was engaged in providing taxpayers and ss was provided to which included the assessee. After detailed finding, the Ld. Assessing Officer held that the short term capital loss as unaccounted income of the assessee observing as under : a transaction designed to produce a gain to be claimed us 10(38) or loss under the head 'STCL' or Business Loss. At the same time another transaction was designed to produce almost matching gains which was not chargeable to tax. These two separate transac conclusions emerge. i. ii. iii. from the avoidance of tax liab 4.6 In view of the above discussion, the aforesaid Short Term Capital Loss of Rs. 2, 10,483/ kept away from the incidence of tax. The same is hereby treated as unaccounted income chargeable to tax in the company for the year under consideration and accordingly to brought to tax.” 3. On further appeal, the assessee challenged both the validity of the reassessment as well as addition on merit. The Ld. CIT(A) however, has adjudicated the is reassessment. The relevant finding of the Ld. CIT(A) is reproduced as under : produce almost matching gains which was not chargeable to tax. These two separate transactions were self-concealing. Thus, the following conclusions emerge. The scheme is a pure tax avoidance scheme without any commercial justification in so far as the making of a profit is concerned. The transactions are self-concealing and are designed to make neither a gain nor a loss. The tax payers would have entered into the scheme only with a view to have gain and that too to claim the same as exempt uls 10(38) of the Act. These transactions have no commercial purpose apart from the avoidance of tax liability. In view of the above discussion, the aforesaid Short Term Capital Loss of Rs. 2, 10,483/- is held to be nothing but unaccounted income kept away from the incidence of tax. The same is hereby treated as unaccounted income chargeable to tax in the hands of assessee company for the year under consideration and accordingly to brought On further appeal, the assessee challenged both the validity of the reassessment as well as addition on merit. The Ld. CIT(A) however, has adjudicated the issue only on the validity of the reassessment. The relevant finding of the Ld. CIT(A) is reproduced Ganesh C. Jain ITA No. 2101/M/2022 4 produce almost matching gains which was not chargeable to tax. These concealing. Thus, the following The scheme is a pure tax avoidance scheme without any commercial justification in so far as the making of a concealing and are designed to The tax payers would have entered into the scheme only with a view to have gain and that too to claim the same as exempt uls 10(38) of the These transactions have no commercial purpose apart In view of the above discussion, the aforesaid Short Term Capital is held to be nothing but unaccounted income kept away from the incidence of tax. The same is hereby treated as hands of assessee- company for the year under consideration and accordingly to brought On further appeal, the assessee challenged both the validity of the reassessment as well as addition on merit. The Ld. CIT(A) sue only on the validity of the reassessment. The relevant finding of the Ld. CIT(A) is reproduced “6.1 The appellant's case was processed u/s 143(1). Subsequently, the AO re-opened the assessment based on inputs given by the Investigation Wing. Mumbai. Relevant extracts of AO's order for re reproduced below: "In this case. the assessee has filed return of income for A. Y. 2012-13 on 31.07.2012 Subsequently, intimation has been received in th Directorate of Investigation, Mumbai, whereby it is intimated that a search and seizure operation was carried out on many entry and hawala operators at various locations across the country. During the course of search operation, it was fou these entry providers were involved in providing entries of bogus long term capital gains, bogus short term capital loss and bogus business loss through manipulation of stock prices of various scrips on the stock exchanges. The beneficiaries who ha bogus entries of LTCG/STCL entries in the penny stock : M/s. VMS Industries Ltd., have been identified and the relevant information was disseminated. The assessee, Shri GANESH CHHAGANLAL JAIN, is also found to have made fraudulent transactions t tune of Rs.2,62,054/ scrip: VMS Industries Ltd. Since there was a reason to believe that substantial income has assessment, the case was re after obtaining due administrative approval and a notice us of the IT. Act dated 30.03.2019 was issued to the assessee. 6.2 The appellant is essentially questioning the re the information received from the Directorate of Investigation, Mumbai. Various judicial forums have held that re Investigation Wing information without independent application of The appellant's case was processed u/s 143(1). Subsequently, the opened the assessment based on inputs given by the Investigation Mumbai. Relevant extracts of AO's order for re reproduced below:- this case. the assessee has filed return of income for A. Y. 13 on 31.07.2012 declaring total income at Rs. 48,80,170/. Subsequently, intimation has been received in this case from the Directorate of Investigation, Mumbai, whereby it is intimated that a search and seizure operation was carried out on many entry and hawala operators at various locations across the country. During the course of search operation, it was fou these entry providers were involved in providing entries of bogus long term capital gains, bogus short term capital loss and bogus business loss through manipulation of stock prices of various scrips on the stock exchanges. The beneficiaries who ha bogus entries of LTCG/STCL entries in the penny stock : M/s. VMS Industries Ltd., have been identified and the relevant information was disseminated. The assessee, Shri GANESH CHHAGANLAL JAIN, is also found to have made fraudulent transactions t tune of Rs.2,62,054/- during F.Y. 2011-12 in the aforesaid penny scrip: VMS Industries Ltd. Since there was a reason to believe that substantial income has assessment, the case was re after obtaining due administrative approval and a notice us of the IT. Act dated 30.03.2019 was issued to the assessee. The appellant is essentially questioning the re-opening based on the information received from the Directorate of Investigation, Mumbai. Various judicial forums have held that re-opening Investigation Wing information without independent application of Ganesh C. Jain ITA No. 2101/M/2022 5 The appellant's case was processed u/s 143(1). Subsequently, the opened the assessment based on inputs given by the Investigation Mumbai. Relevant extracts of AO's order for re-opening are this case. the assessee has filed return of income for A. Y. declaring total income at Rs. 48,80,170/. is case from the Directorate of Investigation, Mumbai, whereby it is intimated that a search and seizure operation was carried out on many entry and hawala operators at various locations across the country. During the course of search operation, it was found that these entry providers were involved in providing entries of bogus long term capital gains, bogus short term capital loss and bogus business loss through manipulation of stock prices of various scrips on the stock exchanges. The beneficiaries who have availed bogus entries of LTCG/STCL entries in the penny stock : M/s. VMS Industries Ltd., have been identified and the relevant information was disseminated. The assessee, Shri GANESH CHHAGANLAL JAIN, is also found to have made fraudulent transactions to the 12 in the aforesaid penny scrip: VMS Industries Ltd. Since there was a reason to believe that substantial income has assessment, the case was re-opened after obtaining due administrative approval and a notice us. 148 of the IT. Act dated 30.03.2019 was issued to the assessee. opening based on the information received from the Directorate of Investigation, Mumbai. opening based on Investigation Wing information without independent application of mind by AO is invalid. In the following decisions it was held that in case incorrect, wrong and non re-opening of assessment and that AO received from Investigation Wing, the re and therefore liable to be quashed. a) Siemens Information System Ltd. Vs ACIT 293 ITR 548 (Bombay H.C.) b) Shamshad Khan Vs ACIT 395 ITR 265 (Delhi HC) c) Pr. CCIT Vs SNG Developers Ltd 404 ITR 312 (Delhi HC) 6.3 In this case of Pr CIT Vs Manzil Dinesh Kumar Shah, Hon'ble Gujarat High Court has held that where the original assessment was made without scrutiny, the requirement of the Assessing Officer the belief that income chargeable to tax has escaped assessment, would apply. 6.4 Taking into consideration the ratio decidandi in the cases cited supra, and looking into the factual background in which the A.O. acted, it is held that the A.O. proc faulted as he has formed a belief that income chargeable to tax had escaped assessment. It is also not a case where AO has recorded incorrect, wrong or non Therefore, this ground questioning the basis of reopening on the basis of Investigation Wing information is dismissed. It follows therefore that the addition of Rs.2,10,483/ was on the right lines. mind by AO is invalid. In the following decisions it was held that in case incorrect, wrong and non-existing reasons are recorded by the AO for opening of assessment and that AO failed to verify the information received from Investigation Wing, the re-opening would be unjustified and therefore liable to be quashed. a) Siemens Information System Ltd. Vs ACIT 293 ITR 548 (Bombay H.C.) b) Shamshad Khan Vs ACIT 395 ITR 265 (Delhi HC) CCIT Vs SNG Developers Ltd 404 ITR 312 (Delhi HC) In this case of Pr CIT Vs Manzil Dinesh Kumar Shah, Hon'ble Gujarat High Court has held that where the original assessment was made without scrutiny, the requirement of the Assessing Officer the belief that income chargeable to tax has escaped assessment, would Taking into consideration the ratio decidandi in the cases cited supra, and looking into the factual background in which the A.O. acted, it is held that the A.O. proceeded on the right lines. AO's action cannot be faulted as he has formed a belief that income chargeable to tax had escaped assessment. It is also not a case where AO has recorded incorrect, wrong or non-existent reasons for reopening the assessment. fore, this ground questioning the basis of reopening on the basis of Investigation Wing information is dismissed. It follows therefore that the addition of Rs.2,10,483/- held by the AO to be unaccounted income was on the right lines.” Ganesh C. Jain ITA No. 2101/M/2022 6 mind by AO is invalid. In the following decisions it was held that in case existing reasons are recorded by the AO for failed to verify the information opening would be unjustified a) Siemens Information System Ltd. Vs ACIT 293 ITR 548 b) Shamshad Khan Vs ACIT 395 ITR 265 (Delhi HC) CCIT Vs SNG Developers Ltd 404 ITR 312 (Delhi HC) In this case of Pr CIT Vs Manzil Dinesh Kumar Shah, Hon'ble Gujarat High Court has held that where the original assessment was made without scrutiny, the requirement of the Assessing Officer forming the belief that income chargeable to tax has escaped assessment, would Taking into consideration the ratio decidandi in the cases cited supra, and looking into the factual background in which the A.O. acted, eeded on the right lines. AO's action cannot be faulted as he has formed a belief that income chargeable to tax had escaped assessment. It is also not a case where AO has recorded existent reasons for reopening the assessment. fore, this ground questioning the basis of reopening on the basis of Investigation Wing information is dismissed. It follows therefore that held by the AO to be unaccounted income 4. The Ld. Counsel of pages 1 to 58. 5. We have heard rival submission of the parties and perused the relevant material on record. We find that before prayed that the Ld. CIT(A) has not decided therefore, the Ld. Counsel submitted that the matter may be restored back to the file of the Ld. CIT(A) for deciding the issue on merit. The Ld. DR fairly accepted that issue on merit has not been decided by the Ld. CIT(A). 5.1 In view of the above f issue of adjudication on merit to the file of the Ld. CIT(A) with the direction to pass a speaking and reasoned order. It is needless to mention that the assessee shall be afforded adequate opportunity had been heard. The ground allowed for statistical purposes. The Ld. Counsel of the assessee filed a Paper Book containing We have heard rival submission of the parties and perused the relevant material on record. We find that before us, the assessee has prayed that the Ld. CIT(A) has not decided the issue on merit therefore, the Ld. Counsel submitted that the matter may be restored back to the file of the Ld. CIT(A) for deciding the issue on merit. The Ld. DR fairly accepted that issue on merit has not been decided by the Ld. CIT(A). In view of the above facts, we feel it appropriate to adjudication on merit to the file of the Ld. CIT(A) with the direction to pass a speaking and reasoned order. It is needless to mention that the assessee shall be afforded adequate opportunity eard. The ground raised by the assessee allowed for statistical purposes. Ganesh C. Jain ITA No. 2101/M/2022 7 the assessee filed a Paper Book containing We have heard rival submission of the parties and perused the the assessee has issue on merit and therefore, the Ld. Counsel submitted that the matter may be restored back to the file of the Ld. CIT(A) for deciding the issue on merit. The Ld. DR fairly accepted that issue on merit has not been acts, we feel it appropriate to restore the adjudication on merit to the file of the Ld. CIT(A) with the direction to pass a speaking and reasoned order. It is needless to mention that the assessee shall be afforded adequate opportunity raised by the assessee is accordingly 6. In the result, the appeal filed by the assessee is allowed for statistical purpose. Order pronounced in the open Court in Sd/- (RAHUL CHAUDHARY JUDICIAL MEMBER Mumbai; Dated: 18/10/2022 Dragon Legal/Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// In the result, the appeal filed by the assessee is allowed for nounced in the open Court in 18/10/2022. Sd/ RAHUL CHAUDHARY) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Sr. Private Secretary) ITAT, Mumbai Ganesh C. Jain ITA No. 2101/M/2022 8 In the result, the appeal filed by the assessee is allowed for /10/2022. Sd/- PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Sr. Private Secretary) ITAT, Mumbai